The recent force majeure notice issued by Formosa Petrochemical Corporation – due to the closure of the Strait of Hormuz and its global impact – is disrupting the availability of key petrochemical inputs across multiple industries, including plastics, packaging, automotive components and consumer products.
For companies dependent on Formosa or its downstream distributors, these interruptions may have immediate operational and financial consequences. While force majeure provisions may address contractual performance obligations, they do not answer a separate – and often overlooked – question: can your business recover resulting losses under existing insurance programs?
Understanding Coverage Options
In certain circumstances, supply chain disruptions of this magnitude can implicate contingent business interruption or dependent property coverage under commercial property policies. Coverage is highly policy-specific and depends on a number of factors, including:
- Whether the claim can be connected to “direct physical loss or damage,”
- How your specific policy defines “dependent property,”
- Whether your policies require specific scheduling of suppliers, and
- The scope of any applicable exclusions.
Taking Action To Protect Your Business
Even where coverage is uncertain, timely notice to insurers is essential to preserve rights and avoid later coverage defenses. Companies experiencing related disruptions should consider a prompt review of their property and business interruption programs, as well as any specialty supply chain, trade disruption or political risk policies that may apply.
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